Kenya has dethroned Ethiopia in a fight for the region’s economic dominance in a race that mirrors their fierce rivalry in long-distance running, where the crown regularly changes hands.
After five years of trailing Ethiopia, Kenya overtook its neighbour in 2025 to become the region’s largest economy, as its gross domestic product (GDP) in dollar terms rose while Ethiopia’s shrank, according to the latest report by the International Monetary Fund (IMF).
The devaluation of the Ethiopian birr saw the country’s GDP in dollar terms shrink by 40 percent to $126.35 billion, while Kenya’s rose by 13.7 percent to $135.92 billion (Sh17.57 trillion), allowing Nairobi to reclaim its position as the region’s economic hegemon.
This saw Kenya climb one place to become the seventh-largest economy in Africa, behind the continent’s giants, including South Africa, Egypt and Nigeria, according to the IMF’s latest World Economic Outlook.
Other countries that are ahead of Kenya include Algeria in fourth position, Morocco and Angola in that order.
However, the IMF projects Kenya to also overtake oil-producing Angola in 2028, moving up to sixth place in the GDP ranking.
Ethiopia, which had occupied seventh position in the previous year, dropped one place to eighth place, ahead of Tanzania, Uganda, Sudan, Rwanda, Somalia, Burundi and South Sudan.
The IMF data put the size of Ethiopia’s economy at $210 billion (Sh28.31 trillion) in 2024, making it the largest in the region.
Kenya’s jump ended Addis Ababa’s five-year reign as the region’s leading economy, during which its output consistently grew by double digits.
Ethiopia, which had occupied seventh position in the previous year, dropped to eighth place after its GDP shrank by 40 percent to $126.35 billion (Sh17.04 trillion).
The Ethiopian economy had for five years stayed ahead of Kenya’s, bolstered by heavy government investment in infrastructure, rising agricultural productivity and an expanding services sector.
However, there was criticism that the country’s currency had largely been overstated, with Addis Ababa putting a leash on its exchange rate.
“That was just the currency effect,” said Charlie Robertson, the chief economic adviser to Equity Group Holdings CEO James Mwangi, on why Ethiopia’s GDP contracted, allowing Kenya to overtake it.
In the second half of 2024, Ethiopia was forced to loosen its grip on its exchange rate as part of the conditions for securing financing from the IMF.
This culminated in the devaluation of its currency, the birr, with the impact showing up fully in the 2025 GDP figures, says Robertson.
Mr Robertson reckons that two years ago, Ethiopia’s currency was overvalued by 50 percent, which, in his own computation, means that the country’s GDP in dollar terms was overstated by a similar margin.
“Today the birr is roughly 20 percent undervalued, so the [dollar] GDP figure is 20 percent too small,” Mr Robertson explained in a text message.
The Kenyan shilling’s recovery against the US dollar helped boost the country’s GDP in dollar terms, allowing Nairobi to reclaim its status as the region’s largest economy.
Kenya had held the position until 2020, when it was overtaken by Ethiopia, whose economy was expanding rapidly. The rivalry between Kenya and Ethiopia ranges from producing some of the world’s best athletes to exporting high-quality coffee and flowers to international markets.
Both countries are also keen to be the region’s aviation hub, with Kenya seeking to make Nairobi a gateway through its national carrier, Kenya Airways, while Ethiopia is positioning Addis Ababa through Ethiopian Airlines.
Perhaps the fiercest rivalry has been in attracting investors to their manufacturing sectors, particularly textiles, apparel and leather products, as the two nations seek to diversify their exports, create more jobs and reduce dependence on exporting raw materials.
Ethiopia boasts a huge population, making it an attractive consumer market. With an estimated 135.5 million people in 2025, it is Africa’s second-most populous country after Nigeria.
The jump in the ranking of Kenya’s GDP—the sum of a country’s production—confirmed the IMF’s earlier projection that Nairobi would overtake Addis Ababa. This means that by the end of 2025 the size of Kenya’s GDP, in dollar terms, is bigger than Ethiopia’s by $9.57 billion (approximately Sh1.24 trillion).
The size of Ethiopia’s economy in dollar terms took a hit after the Horn of Africa country devalued its currency, the birr, as part of the conditions for securing financing from the IMF.
The birr, Ethiopia’s currency, fell by over a third against the US greenback starting in June 2024.
Kenya is set to maintain that position next year, before climbing a rung higher to sixth place in 2028 by overtaking oil-producing Angola.
In its outlook for October last year, the IMF had projected that Kenya would overtake Ethiopia after Addis Ababa devalued its currency, the birr, as part of the conditions to secure financing from the multilateral lender.
The IMF report shows that Ethiopia’s economy grew at more than twice Kenya’s pace in real terms in 2025, expanding by 9.2 percent compared with Kenya’s 4.6 percent.
However, when GDP is converted into US dollars, Kenya’s nominal GDP rose by about 14 percent to $135.92 billion, while Ethiopia’s plunged by nearly 40 percent from $210 billion to $126.35 billion.
The sharp reversal was therefore not a reflection of Ethiopia’s economic output collapsing, but was largely the result of exchange-rate movements and the way the two economies were valued in dollar terms.
As a result, the currency shifts turned a rapidly growing Ethiopian economy into a much smaller economy when measured in dollars, allowing Kenya to reclaim the regional economic crown.
Ethiopia had for a long time maintained tight control over its exchange rate, giving its currency an artificially higher value and making its imports cheaper. This has raised fears among some observers that Ethiopia’s GDP is overstated.
However, to secure a $3.4-billion (Sh440 billion) four-year IMF loan, Ethiopia loosened its grip on its exchange rate, and its currency has fallen by over a third against the US dollar since July last year.
Instead, Ethiopia switched to a market-determined foreign exchange rate, a major relief for some foreign companies such as Kenya Airways, which had said it was having difficulty unlocking Sh1.5 billion frozen in Ethiopia because of foreign exchange restrictions. This is despite Ethiopia having a much lower per capita GDP than Kenya because of its huge population.
Reportage Desk 
